CONCEPT OF INTEGRATION

An integrated supply chain can be defined as an association of customers and suppliers who, using management techniques, work together to optimize their collective performance in the creation, distribution, and support of an end product. It may be helpful to think of the participants as the divisions of a large, vertically integrated corporation, although the independent companies in the chain are bound together only by trust, shared objectives, and contracts entered into on a voluntary basis. Unlike captive suppliers (divisions of a large corporation that typically serve primarily the parent corporation), independent suppliers are often faced with the conflicting demands of multiple customers. (The technological and investment problems faced by SMEs in attempting to deal with these conflicting demands are discussed in Chapter 9.)

All supply chains are integrated to some extent. One objective of increasing integration is focusing and coordinating the relevant resources of each participant on the needs of the supply chain to optimize the overall performance of the chain. The integration process requires the disciplined application of management skills, processes, and technologies to couple key functions and capabilities of the chain and take advantage of the available business opportunities. Goals typically include higher profits and reduced risks for all participants.

Traditional unmanaged (or minimally managed) supply chains are characterized by (1) adversarial relationships between customers and suppliers, including win-lose negotiations; (2) little regard for sharing benefits and risks; (3) short-term focus, with little concern for mutual long-term success; (4) primary emphasis on cost and delivery, with little concern for added value; (5) limited communications; and (6) little interaction between the OEM and suppliers more than one or two tiers away. Integrated supply chains tend to recognize that all parties should benefit from the relationship on a sustainable, long-term basis and are characterized by partnerships with extensive and open communications. A well integrated system of independent participants can be visualized as a flock of redwing black birds flying over a marsh. Without any apparent signal, every bird in the flock climbs, dives, or turns at virtually the same instant. That is an integrated system! Supply chain members, in a similar manner, must react coherently to changes in the business environment to remain competitive.

Supply chain integration is a continuous process that can be optimized only when OEMs, customers, and suppliers work together to improve their relationships and when all participants are aware of key activities at all levels in the chain. First-tier suppliers can play a key role in



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